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Paying a nanny through a company

What are the effects of paying a nanny through the limited company that you own and are an employee

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We have a client who is the sole shareholder and employee of an advisory business, they would like to employee a nanny through their company to look after their child whilst they work, to me this is a benefit in kind and ends up on a P11d, a couple of questions occur to me, would the company be able to claim the Employers Allowance for National Insurance as they now have 2 employees, what would happen to the 30 hours free child care would the company be able to claim the 30 hours or does this fall on the director to claim against the benefit in kind?

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By paul.benny
12th Oct 2021 15:30

Agree that the nanny will be a bik. And unlikely to be a deductible cost in the company’s tax computation. And not eligible for Employment allowance.

The 30 hours free childcare must be with an approved childcare provider. Whilst nannies can register as approved providers, in this case, Client’s company would probably have to register as the provider.

‘Free’ childcare is something of a misnomer. It’s paid by local authorities and typically pays at rate of £4/hour for 38 weeks a year. There are also minimum and maximum income requirements for claimant and partner.

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Replying to paul.benny:
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By Hugo Fair
12th Oct 2021 17:41

Agree with all these points ... despite the link provided by Justin to a promoter of the approach set out by OP.

FWIW I wouldn't be happy as the Nanny in that scenario ... there are all sorts of potential implications (especially if she is 'live-in') - not excluding the much weakened position she would be in if relations with your client deteriorate.

I don't normally introduce any 'moral dimension' in my answers (as they're not strictly relevant to straightforward tax queries), but it should be obvious that the nanny would not truly be an employee of the company unless her job specification is dramatically altered ... at which point she's no longer a nanny. QED

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Replying to Hugo Fair:
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By Jo Nokes
12th Oct 2021 20:05

Is it the case that the nanny’s salary can be both a BIK and non deductible?

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Replying to Jo Nokes:
Psycho
By Wilson Philips
12th Oct 2021 21:27

Yes

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Replying to Jo Nokes:
Psycho
By Wilson Philips
12th Oct 2021 21:27

Duplicate

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Replying to Wilson Philips:
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By Hugo Fair
12th Oct 2021 22:24

Beaten to it by a mile (or an hour).
I was trying to work out how to replicate the effect of the Churchill bulldog (old insurance advert) ... nodding his head vigorously and saying "Oh yuss!"

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By birdman
15th Oct 2021 09:40

Out of interest, to those saying the nanny's wages wouldn't be allowable as a CT deduction, why wouldn't it be classed as part of the Director's remuneration package?

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim47107

Perk cars would otherwise be similarly disallowed.....

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Replying to birdman:
Psycho
By Wilson Philips
15th Oct 2021 11:35

I don't believe that anyone said that the wages wouldn't be allowable. The important word in the poster's question was can.

Such instances may be rare, but depending on the circumstances it is possible.

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Replying to Wilson Philips:
By birdman
15th Oct 2021 12:50

As this was the original response to which you and other people were commenting, that seems to be exactly what was said, hence my post...
By paul.benny
12th Oct 2021 15:30
... .unlikely to be a deductible cost in the company’s tax computation.

I agree it could be disallowable, but in the circumstances here I would suggest it is allowable. Other problems may of course exist....

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Replying to birdman:
Psycho
By Wilson Philips
15th Oct 2021 13:13

My comment was a specific response to this question:

"Is it the case that the nanny’s salary can be both a BIK and non deductible?"

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Replying to Wilson Philips:
By birdman
15th Oct 2021 15:00

And my comment was in relation to your statement "I don't believe that *anyone* said that the wages wouldn't be allowable."
As we both clearly agree, I suggest we leave it at that!

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Replying to Wilson Philips:
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By Justin Bryant
15th Oct 2021 13:50

Company A decides to give its directors/staff a perk to incentivise them by paying their nanny costs and pays a nanny agency re that.

Company B does exactly the same but employs its own nanny (or nannies) for said services.

Why is company A's invoice from the nanny agency CT deductible but Company B's nanny wages not CT deductible? What is the legislation or case law for that distinction?

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Replying to Justin Bryant:
Psycho
By Wilson Philips
15th Oct 2021 13:58

As always, Justin, you have completely missed the point. Whether that is down to deliberate selective reading or not, I don't know.

Did you miss the emphasis that I put on can earlier? Whilst others may have been a little more definitive, I have never at any stage said that the nanny's wages would not be deductible in this case. I was alluding to the fact that in certain circumstances the wages (or indeed any other benefit) might be chargeable as a BIK but non-deductible for CT purposes.

The assumption that costs of providing a BIK are automatically deductible for CT purposes is mis-placed. That is all I was saying, and nothing more.

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Replying to Wilson Philips:
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By Justin Bryant
15th Oct 2021 14:07

OK, but there seemed to be people here saying it's unlikely to be CT deductible and in my view it's unlikely not to be CT deductible and if you agree then that's rare and force of habit from me I guess.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
15th Oct 2021 15:01

It might be a rare event, but I do agree with you - non-deductibility is unlikely in this case.

The question is whether the benefit is being provided as part of the employee's remuneration package, and this should be fairly self-evident from the facts - particularly where salary sacrifice is involved.

However, although they may be rare (and in any event arguable as part of remuneration) it is easy to think of examples of one-off payments by the company that may be treated (or at least argued by HMRC) as not being part of an agreed remuneration package (and therefore failing the W&E test).

As I said, there is a misplaced assumption that a BIK cost is automatically deductible for CT. The reverse is similar - I have come across countless instances of advisers believing (wrongly) that if an expense is disallowed for CT that automatically excludes it from being a chargeable BIK.

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Replying to Wilson Philips:
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By Jo Nokes
15th Oct 2021 14:50

Gosh, I wish I had phrased my question a little more accurately, ie not used the word can!

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Replying to Jo Nokes:
Psycho
By Wilson Philips
15th Oct 2021 15:03

Indeed. If instead you had said "will" my response would more likely have been along the lines of "possibly, but unlikely".

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By sammerchant
15th Oct 2021 10:55

Just curious as to why it would not be a case of the company discharging the pecuniary liabilities of the director and therefore to be treated as additional salary (subject to Ers & Ees NIC).

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Replying to sammerchant:
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By Jo Nokes
15th Oct 2021 11:38

Because the company would be the employer, and it wouldn't therefore be the director's liability.

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Replying to Jo Nokes:
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By Hugo Fair
15th Oct 2021 12:48

Exactly ... if company wishes to discharge "the pecuniary liabilities of the director" then all they have to do is to pay the director (not the nanny) an additional salary (which would of course be subject to ER's & EE's NIC + EE's tax).
This may well not please the director (especially if a higher rate taxpayer), but the nanny then remains her employee not the company's employee.

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